| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1051366833908
Date of advice: 3 May 2018
Ruling
Subject: Sale of a property GST-free as a supply of a going concern
Question 1
Is the sale of the Property to X (the Purchaser), by Y (the Vendor) GST-free as a ‘supply of a going concern’ as defined in section 38-325 of A New Tax System (Goods and Services Tax) Act 1999?
Answer
Yes, the sale of the Property will be a GST-free supply of a going concern under section 38-325 of the Goods and Services Act.
This is because you meet all the requirements of section 38-325 including that, on settlement date, you will be providing the Purchaser all of the things that are necessary for the continued operation of a leasing enterprise, being the Property and the lease agreement. In addition, you will continue to carry on the leasing enterprise until the day of the supply.
Finally, there is a clause in the sale contract indicating that you and the Purchaser have agreed in writing that the sale is a supply of a going concern, the sale will be for consideration and both the Vendor and Purchaser are registered for GST.
Question 2
Is the fact that some of the consideration for the sale of the property will be received by the vendor prior to the date of settlement of any relevant in determining the GST status of the sale?
Answer
No, receiving part consideration prior to the settlement date does not affect the GST status of the sale.
Relevant facts and circumstances
The Property is a building which Y (the Vendor) has used as its business premises since the 19XXs. The Property is currently subject to the Mortgage.
The Vendor has found the Property is becoming less attractive as business premises and wishes to find premises in a new location more strategically suited to its operations.
In addition, in recent times a larger parcel of land adjoining the Property has been acquired by a developer who intends to construct residential units on the site. As part of that process, the local Council rezoned both the adjoining block and the Property as residential.
The Vendor has decided to sell the Property and use the funds from the sale to obtain new business premises.
The Contract provides for a longer than usual settlement period and for the payment of the purchase price in instalments. This will give the Vendor time to find new business premises whilst continuing to operate its business on the Property. It will also allow the Vendor to have a sufficient sum to place a deposit on a new property and pay off the Mortgage.
The Purchaser, X a wholly owned subsidiary of Z, is purchasing the Property to undertake the development of residential units for sale to the public in the future.
The Lessee, W is also a wholly owned subsidiary of Z.
The Lessee has agreed to enter into a lease of the Property when the Vendor no longer needs the Property to conduct its business. For the sake of certainty, the date that the parties have chosen for the date of the Lease is the day prior to settlement.
The Contract provides:
● Settlement will occur XX months after the date of the exchange of contracts.
● The purchase price of the Property is $XX, excluding GST.
● The deposit payable on exchange of contracts is XX% of the purchase price (excluding GST) and that sum will be released to the Vendor for its own use.
● An instalment equal to XX% of the purchase price is to be paid by the Purchaser to the Vendor on exchange of the contracts.
● The proposed second instalment payment due October 20XX. This payment of $XX (exclusive of GST) will provide sufficient funds for the Vendor to settle the Mortgage on the Property in full. At this time, the Purchaser will accept a charge over the Property.
● One day before settlement (October 20XX) the Vendor will Lease the premises to the Lessee.
● The Property will thus be sold subject to the Lease.
● The Vendor may lease the Property to another person at any time during the completion period up to the date that the Lessee commences their period of tenancy.
● The Vendor and the Purchaser have set out that the sale of the Property is the supply of a going concern on page 2 of the contract.
● The Lease provides that the Lease will commence on the day before the settlement of the Sale contract. The term of the Lease will be six months. The rent will be $XX per month.
The Vendor and the Purchaser are both registered for GST purposes. The Vendor lodges its business activity statements monthly and accounts for GST on an accruals basis.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
